Insurers face large claims after second Boeing 737 MAX crash

Reuters Reuters

12 March, 2019, 6:21 pm

Relatives and friends of Sara Gebremichael, 38, a senior hostess and a crew leader on the Ethiopian Airlines Flight ET 302 plane that crashed, mourn at her house in Addis Ababa, Ethiopia, March 11, 2019. REUTERS/Maheder Haileselassie

(Reuters) – Boeing Co’s insurers face big claims from families of the victims of the Ethiopian Airlines crash, coming less than six months after the crash of the same type of Boeing aircraft in Indonesia, insurance and aviation sources said.

An Ethiopian Airlines passenger jet bound for Nairobi crashed minutes after take-off on Sunday, killing all 157 people on board, raising questions about the safety of the Boeing 737 MAX 8, a new model that also crashed in Indonesia in October.

While the initial insurance payments will be made by Ethiopian Airlines’ insurers, they may look to recoup their money from Boeing’s insurers if they can prove that the aircraft was faulty, the sources said.

Initial payments to the passengers’ families are bound by the Warsaw and Montreal conventions, but those payouts could be much higher if families pursue legal claims, particularly through U.S. courts, said Clive Garner, head of law firm Irwin Mitchell’s travel litigation group in London.

“If there were to be anything defective in terms of the plane or any of its components, then it would be possible to bring a claim against the manufacturer as well as the airline,” he added.

Insurers typically form a consortium to share the risks of large claims, with the lead insurer taking a larger proportion of the risk. The insured value of the plane itself was likely around $50 million, according to industry sources.

Willis Towers Watson was the insurance broker for Ethiopian Airlines, while Chubb was the lead insurer, a Willis spokeswoman said on Monday. A Chubb spokesman declined to comment.

Britain’s Global Aerospace was the lead insurer for Boeing and also for Lion Air, which operated the plane that crashed in October, said Global Aerospace Chief Executive Nick Brown.

Marsh was Boeing’s insurance broker, two sources told Reuters. None of the sources gave financial details of the policies.

Boeing shares fell 5.6 percent on Monday.

U.S. LAWSUITS POSSIBLE

Boeing self-insures an initial layer of coverage before the Global Aerospace coverage kicks in, said Justin Green, a New York-based aviation lawyer who has represented families in cases against Boeing. Boeing declined comment on its insurance cover.

It is not uncommon for the planemaker, which is headquartered in Chicago, to face lawsuits in the United States, where legal compensation payments for the crash victims could run around $2 million to $3 million per person, depending on the law applied, compared to about $200,000 in Ethiopia, said Green.

U.S. courts often throw out such lawsuits, given the difficulty of finding witnesses overseas, but the fact that eight U.S. citizens were killed in the Ethiopian Airlines crash increases the likelihood that litigation on behalf of all victims’ families could be heard by a U.S. court, Green said.

Initial compensation costs for all 157 passengers who died on the flight could be around $25 million, according to Reuters calculations based on the terms of the Montreal convention.

The Montreal convention provides for a maximum of 113,100 special drawing rights, currently worth $1.39, for death or injury of each passenger, although not all countries are joined up to the convention.